Loopholes in the H-1B and L-1 visa programs have enabled companies to employ foreign guest workers at a lower cost than American workers, a new report by the Economic Policy Institute shows. The EPI study, The H-1B and L-1 Visa Programs: Out of Control, by Rochester Institute of Technology Associate Professor Ron Hira, also finds that the loopholes provide an unfair competitive advantage to companies that specialize in offshore outsourcing, consequently undercutting companies that hire American workers.

Congress and the Obama administration should immediately overhaul the H-1B and L1 programs, high-skill guest worker programs that together account for roughly one million guest workers, because they displace U.S. workers. Furthermore, for at least the past five years, nearly all of the employers receiving the most H-1B and L-1 visas have used them to offshore tens of thousands of high-wage, high-skill American jobs.

The H-1B visa and the L-1 visa are both non-immigrant visas, and both H-1B and L-1 workers are sponsored by their employers. The H-1B visa allows employers to temporarily employ foreign workers in specialty occupations, most of which require at least a bachelor’s degree. The L-1 visa allows intra-company transfers of foreign workers to a multi-national corporation’s U.S. office.

Overhaul of the programs should address four fundamental problems in their design:

Neither program requires a labor market test. Companies are not required to demonstrate that a shortage of U.S. workers exists in order to sponsor guest workers, nor do they need to attempt to recruit American workers before sponsoring guest workers. In fact, there have been a number of documented cases of American workers being forced to train their foreign replacements.

The wage requirement for the H-1B program is inadequate, and the L-1 program does not have one. The H-1B program requires employers to pay the prevailing wage. However, this requirement is riddled with loopholes that allow companies to legally pay below-market wages, making guest workers cheaper to employ than U.S. workers. The L-1 program’s lack of any wage requirement enables companies to pay workers wages at their home country levels, or less, even while they are working in the U.S.

Visas are held by employers rather than workers. Because most of the power in the employer-employee relationship rests with H-1B and L-1 employers, guest workers are at risk of being exploited—and exploitative situations have been well-documented.

Oversight of both programs is poor. Federal regulations are toothless and ineffective, and regulating agencies rarely scrutinize employers.

The report makes a number of recommendations on how to most effectively overhaul the H-1B and L-1 programs, including, first and foremost, establishing an effective labor market test and paying guest workers market wages. It also recommends subjecting companies that employ guest workers to random audits and granting the government agencies in charge of these programs—including the Departments of Homeland Security, Labor and State—authority and sufficient resources to ensure they are operating properly..